As former LPL Financial OSJ and hybrid RIA Independent Financial Partners readies to launch its own broker-dealer in May, COO Chris Hamm suggests one of the reasons he is attracting advisors to the firm is IFP’s equity offer.
“Everyone is getting the equity. That’s moving with us on or around day one. And that’s something that I think is part of the reason that a lot of people are coming with us, because it’s nice to be able to say that they’re a partner and an owner in the firm,” says Hamm.
In January, IFP announced it will offer 15% of the firm’s equity to advisors, based on their production. There is a slight enhancement based on production for those who have been with the firm longer as opposed to those who have just joined, says CEO William Hamm.
The equity also follows a three-year vesting schedule.
The Tampa, Fla.- based firm declared its decision to break away from LPL in April last year and received regulatory approval from self-regulator Finra to launch its own broker-dealer in February this year. During this period, LPL and IFP have had more than a few public spats about luring advisors.
IFP expects to launch its broker-dealer in May and has upwards of 200 advisors who have signed letters of intent to join, says William Hamm.
In the fight for advisors, the past year has seen a few aggressive transition deals, including some by LPL which reportedly offered up to 50 bps on assets as forgivable loans to advisors at certain competitors.
Does IFP’s equity offering measure up?
Chris Hamm says advisors coming to IFP could structure the deal with both equity and forgivable loans.
If advisors “want to take less equity, they can get higher transition assistance,” says Chris Hamm, admitting he doesn’t think anyone has yet made such a deal.
In fact, the idea of getting their hands on even more equity has generated some inquiries from advisors, says William Hamm. He says that is not an option right now but could be possible down the road.
“We’ve actually had more advisors that have asked us if they could even buy stock, of course, which we don’t have at the moment. We will once people start retiring, but the demand is more for acquisition of stock than cash,” says William Hamm.
While recruiters understand that offering equity is a way for firms to engage with advisors, some recommend paying attention to the longer-term impact of taking up such a deal.
“Equity in a private entity is tricky. It could be a wonderful investment or it could be something that gives you a dividend or might be nothing,” says Danny Sarch, president of White Plains, N.Y.-based Leitner Sarch Consultants, speaking in general terms and not on the specifics of the IFP deal.
“Bottom line is the advisor needs to feel comfortable that he or she will thrive in the new model, and that any deal that they take, essentially diminishes their risk and the time that their income is down during the transition,” says Sarch.